It’s no secret, cash-based practices are on the rise. If you’ve been following the WebPT Blog, you already know just how important it is for those venturing into a cash-based model to pay attention to the rules and regulations that dictate not just business owners, but all physical therapy practice. While attention to this level of compliance detail may seem cumbersome and nuanced, it will set the foundation for you to successfully—and safely—grow your practice. More importantly, it also protects your patients!
Many PTs we speak with at MovementX get into cash-based practice because patients have specifically requested their services outside the clinic. Being opportunistic with these requests will undoubtedly spark that excitement about patient care that brought you into this profession in the first place. For many, treating these first few patients eventually leads to a full-time cash-based practice. Whether you’re just treating a few patients on the side or opening up a full-time practice, it is absolutely essential that you protect yourself from liability.
If you haven’t already, check out Compliance in Cash Based Practice, Part 1 to learn more about how state practice acts, direct access, and licensure specifically impact out-of-network or cash-based practice models. It will help provide a good framework for this next topic: How to set up your cash-based business entity.
Setting Up Shop
Starting a new business is one of the most exciting and simultaneously nerve-wracking experiences you may go through in life. I compare my journey founding and growing MovementX to having children. You carry around this idea of your business for months until it grows into something viable. When you give birth to the idea and open up your doors for business, you quickly realize you have no idea what you’re doing and you grasp for help anywhere you can find it. As your business grows you start to realize the small wins and get more strategic with your efforts. By the time your business is a toddler, it becomes more self-sufficient and you can finally come up for a breath of air. By the time you start your second business, you’re a pro at this.
Let’s focus on the birth of your business. A strong foundation early on will help you succeed in the long run—and give you peace of mind in the short term.
Step 1: Determine Your Business Entity
When setting up your business, you can choose from several different business entity structures.
Sole Proprietorship: If you are collecting money for services and reporting them on your taxes, but do not have any business entity set up, you are considered a sole proprietorship. This structure is only viable if you:
- Are working by yourself,
- Have very few patients on your caseload,
- Don’t need extensive liability protection, and
- Aren’t looking for tax benefits.
Even as a sole proprietor, you may be required to obtain a business license to operate if your city or county requires one. Oh and please, secure a professional and general liability policy before ever treating a patient.
LLC: This is the most common type of business entity for cash-based practice and can be sufficient for someone in solo practice as well as a partnership. An LLC is considered a pass-through entity, which means your business is not taxed separately from your individual income taxes, saving you from double taxation (this is a much more advantageous tax structure for a small business). The greatest benefit about an LLC is it completely separates the liability of operating a business from your personal life. If in the unlikely case a lawsuit is filed against you, the only assets at risk are those that exist within your LLC. Your personal assets such as your home, car, and savings are not considered collateral. As your business grows, an additional benefit includes expanded tax savings and deductions.
Corporation: This is a common business entity for large, multistate businesses with multiple revenue streams that plan to:
- Raise funding from investors, and
- Designate stock to founders and/or employees.
This entity type offers similar liability protection to the owners, however has a much less beneficial tax structure for small businesses.
Please note that this is not an exhaustive list of possible entities and is purely drawn from my experience as a physical therapist who has navigated this entrepreneurial world time and again. There are some states that have specific regulations behind what kind of entity a healthcare provider can establish. For example, in California physical therapists must register as a Professional Corporation instead of an LLC. If it is not immediately obvious to you what requirements your state has outlined, now would be the time to hire a small business attorney who can guide you through this process (and in some cases, do it for you).
Step 2: Register Your Business
Now that you’ve decided on the business entity for your cash PT practice, it’s time to make it official!
Outside of a sole proprietorship, all states require business entities to file initial registration and annual reports to remain in good standing. There are several governing bodies within your state that you must stay in compliance with, including:
- The Secretary of State, which is where your business is registered and all records are housed.
- The Employment Commission, which requires you to stay in compliance with certain regulations such as workers compensation, unemployment, and workplace labor laws.
- The Department of Revenue, which is where you pay employment, corporate income, and sales taxes.
While all states follow the general format above, they all call their departments something slightly different. If this is the point in the article that makes your head spin, I highly recommend hiring that small business attorney who can take this on for you!
Step 3: Prepare For Taxes
Pending on what type of business entity formation you decide on from the list above, you will most likely be paying self-employment taxes. This means that you take home a higher percentage of your revenue due to the fact that employment taxes like federal income, social security, and local state taxes are not taken from your paycheck. However, come tax season you will have to pay all of those taxes in a lump sum. In some cases you will need to pay these taxes quarterly, so please hire and regularly consult an accountant.
So, what is the benefit to self-employment taxes compared to employee taxes? Deductions! From the second you register your business until the time comes to pay your taxes, you can subtract expenses from your tax bill to ultimately lower your tax burden. A non-exhaustive list includes all equipment, rent, business registration, cell-phone and laptop, home office, and car expenses. In some cases, you can even hire your children as a tax deduction! An experienced small business tax consultant can help you get creative and ultimately save you money.
Going through physical therapy school we receive very little education in business, financial management, or the often emotional journey of entrepreneurship. While growing a business can appear scary, starting with a small scale cash-based practice will allow you the freedom to innovate without too much risk. If we as physical therapists can establish an economy of strong and compliant small businesses, we will have the ability to reach a greater number of patients and truly change the health of society through movement.